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Post by chrisjen17 on Mar 13, 2023 19:37:40 GMT
I would like to better understand selling covered calls. I think it would be a great way to add some extra income to my core portfolio of stalwarts. Similar to richardsok 's trading approach, I think doing this against company shares that are low volatility would be a decent strategy. Is that foolhardy? Or possibly just not worth the effort/taxes? Capital, I saw that you mentioned selling calls in the BSW. Do others do this as well? There is a lot of mediocre guidance, and I would much rather glean information from those with skin in the game experience. Thanks,
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Post by richardsok on Mar 13, 2023 19:49:35 GMT
Options for true low-volatility stocks are almost always priced very low -- you'll probably find slim pickin's in trying to sell covered calls for lo-vol individual stocks.
Although it is too volatile to effectively trade according to my method, QYLD is priced around a relatively firm support level and is tossing off about 12% in distributions. There's also RYLD, XYLD and a bunch of CEFs to consider out there. A few, like DIAX, IGA, ETW, BOE and BGY sell at good discount.
No recommendations; just chat.
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Post by chrisjen17 on Mar 14, 2023 16:12:45 GMT
Appreciate the discussion! I guess that does make sense that the demand for such an instrument would be pretty low. There are no free breakfasts, right?
I don't have much experience with CEF's, but it seems like you all are in and out of them a lot and I dont have time to manage my portfolio that way. I would like to just B&H 20ish stocks and then find a way to maximize the simplicity it offers. Maybe switching to ETFs would be a better route (I do own a lot of SCHD), but I would think the assessed volatility in those would be lower than an individual stock... even if it is lower volatility.
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Post by Capital on Mar 14, 2023 17:08:03 GMT
There are some EFTs that have weekly options. I have written some weekly covered calls on IVV in the past. Always be prepared to lose your shares at the call option price.
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Post by archer on Mar 14, 2023 21:47:56 GMT
Glad to see chrisjen17's OP. I was going to start a thread similar to this. I receive a lot of notices from Fidelity about options trading and never have looked into it, and haven't noticed any postings about options trading on this forum. I follow Tom Bowley on Youtube and he often talks about their effect on the markets, (options expiration week, max pain, etc) but it's an area of investing I know nothing about. I read an article from Investopedia where just about every sentence has a hyperlink included to explain a term one needs to know to understand their article. I'm not sure there is a favorable cost/benefit ratio to taking the time to become more familiar since I rarely see it discussed here. But I am curious. Based on Bowley's comments, it seems that one does well to sell stocks going into options expiration week and buy afterwards. Even though history might prove this true, I'm reluctant to time the market based on time of the month. That's like timing the market based on market timing. LOL!
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Post by kathiel on Mar 26, 2023 23:04:22 GMT
I've traded options in the past. I got the best prices for high volatility stocks. I haven't traded options for years now. I'm pretty happy just buying stocks and collecting the dividends.
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Post by rhythmmethod on Mar 31, 2023 1:53:23 GMT
I use JEPI for this purpose. So far am happy with the results and will add on a pullback. I'd rather let the pros do this kind of work. I think SCHD and JEPI make a nice pair. Good luck.
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Post by archer on Mar 31, 2023 4:45:15 GMT
I use JEPI for this purpose. So far am happy with the results and will add on a pullback. I'd rather let the pros do this kind of work. I think SCHD and JEPI make a nice pair. Good luck. I bought both as a pair about 6 months ago to add to FMSDX and have been happy with them. I keep the 3 at about 50% of PF and take more risk with the other half. SCHD and JEPI have pretty close to the same sector weightings.
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Post by rhythmmethod on Mar 31, 2023 16:53:10 GMT
archer , yep, I hold FMSDX (also VWIAX, VWELX). I'd rather let pros do this kind of balancing. Maybe not my most thoughtful choices but far from my dumbest. Of course, you could let folks with lots of free time on investment boards direct you. Good luck!
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Post by richardsok on Mar 31, 2023 17:54:06 GMT
I also use JEPI. If you are relatively bullish on the market, JEPI is the only cov call ETF I know that tracks SPY quite closely, yet distributes generously. Now I generally trade JEPI according to my protocol but one might very well DC average into it over time, or just buy-and-hold as a better alternative to SPY. Below is the one-year SPY chart in blue with JEPI shown in red (4 day moving average -- true price bleached out for clarity) The two ETFs end up dead even, but JEPI has been throwing off a big yield all year. tinyurl.com/mpk6yena
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sam
Lieutenant
Posts: 123
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Post by sam on Apr 1, 2023 1:27:17 GMT
Well Covered Call is one of first Strategy which most people learn (including me). It is defined risk. Most (if not all brokerages and Option trading courses ) promote this as extra income as Wall street is rose garden and they are throwing free money at you to pick up left and right! I think since it is defined risk, you can't loose more money than current worth of stock. Most people become nervous when it comes to Options. That's why brokerages promote Covered call as income and perhaps as one of first Options strategy.
Most people think of covered call during market volatility and think they can make extra money if market goes south. How do I know? I was one of those people. COVERED CALL is Bullish or Neutral strategy. Bullish means, you choose this strategy if you think stock likely to go UP. Most investor sell Covered Calls thinking of income. Then stock moved up, and then they become mad, why? stock is moving up and they are going to loose their shares and did not get to participate in upside move.
Let me give you an example (example only I am NOT recommending or suggesting any of stocks mentioned in this post). Lets say You own mighty APPLE and APPLE is trading at $164.5. You SOLD May (May 19 expiration)170 CALL for $4. Total break even is $174. Now let say market becomes hot and apple is moving. This has happened before. Now Next week apple is @ $175/share. Your SOLD call is in the Money and now probably worth $8 (By they way in the money option decay slowly!)
There are 2 things which you can do. Either Buy back Option for $8 ($4 * 100 loss) OR you will sit and wait until May 22nd to get your money to buy something else and in meantime lick your wounds hoping APPLE fall back. In the meantime apple went though roof. Same thing could happen to boring stocks like GIS, MKC or LLY. Who would have thought people are sitting home eating all those cookies and using spices and Lilly is making diabetes drug! (can you imagine if you owned one of these low beta stocks and sold Covered call in last 1 month!)
Other situation is, You may think Market going to go south, You apple is @164.5 and you sold same May 19 @170 covered call for $4. Now lets say market is going down so is your apple. During market down turn VOLATILITY goes UP (IV of Options go up in general). so Options retain their premium. You may be surprised. In 1 week lets say apple went from 164.5 to 150. But Covered call you sold for $4 is worth now $2-3. In order for you get your entire $4 you still have to wait until May 22nd. You might be better off Selling your shares at Market top and buy either apple or something else whenever you are ready. How low market can go, all your need to do is look at some long term charts.
Netflix and Meta might be better examples how they went zig zag in last 1 year.
Options can be very creative way to invest if you have time to learn them first. I would suggest don't married to idea like COVERED CALL etc. Options are like tools. If you to home depot and you ask for nails, Store rep. will ask you what kind of nails and what is the purpose. You need to know your risk management and position sizing.
Few reasons With Options people loose money. 1.LACK of KNOWLEDGE 2.Lack of Planning 3.Lack of Discipline 4.Lack of Risk Management 5.Position sizing
There are lots Options courses (lots of them free). It may not be bad idea learn about Options first and GREEKS! First Tools then application, I think.
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Post by catdog on Apr 2, 2023 2:16:28 GMT
Sam,
Numbers 1-5 reminds me of my early forays into stock picking.
Catdog
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sam
Lieutenant
Posts: 123
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Post by sam on Apr 2, 2023 16:19:50 GMT
catdog, Options have 100 X multiplier. Options can be Long or Short or credit spread. Short Options, whether single leg or part of multi leg Options trade can be exercised anytime and depending on your account size you may get a "margin call".
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Post by chrisjen17 on Apr 3, 2023 23:11:08 GMT
sam, appreciate the insight and discussion. At my last job I worked with a guy who traded options and e-mini futures. He was brilliant, successful at it, and was trying to get me into it, but I was too fearful to try based on all the reasons you listed. It seemed like covered calls were the simplest way to dip into it and learn, but will likely continue to sit on the sidelines for lack of knowledge.
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sam
Lieutenant
Posts: 123
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Post by sam on Apr 4, 2023 1:52:45 GMT
Difference between Options and stocks is,
Options have expiration date Options have Greeks such as Delta = Dollor or Shares or Probability Theta = it determines decay Vega = it is influenced by IV (implied Volatility).
Are you at Fidelity? Fidelity has lots of sources (free), both live and on demand (videos - pictures is worth thousand words) and written articles.
Try it out.
Understanding Options is important if you are buying or selling very cheap options and appropriate amount of risk. Only thing i will add is, who is on other side of trade in your covered call. Why someone will give you anything?
I have done it and regretted it because I sold very very cheap Covered Call before stock was going to make a move.
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Post by chrisjen17 on Apr 4, 2023 3:47:27 GMT
I have heard TDA is the place for options, but also use FIDO. I have watched a few webinars, but I don't feel confident in my understanding and won't pull the trigger until I do. I do like the paper trading option on TDA's ToS platform, so I may try my hand in there with play money.
My understanding is that many calls/options are bought by hedge funds (big and tiny) that are just using them as low cost options to cover risks.
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Post by richardsok on Apr 4, 2023 9:51:57 GMT
I have heard TDA is the place for options, but also use FIDO. I have watched a few webinars, but I don't feel confident in my understanding and won't pull the trigger until I do. I do like the paper trading option on TDA's ToS platform, so I may try my hand in there with play money. My understanding is that many calls/options are bought by hedge funds (big and tiny) that are just using them as low cost options to cover risks. "....but I don't feel confident in my understanding and won't pull the trigger until I do. I do like the paper trading option on TDA's ToS platform, so I may try my hand in there with play money."
VERY intelligent ! And if you ever do begin to trade options, may I suggest you begin with MINI positions here. I'm talking a buy or sell of just ONE or TWO little options in any trade -- what you might spend in a parking meter or in a McDonald's. I have found that any 'real money' trade -- no matter how small -- does something to my head that paper trading just won't match. Third, let me remark I'd have more money today if I'd never heard the word "options". Let us know how you make out. (Better than I did, I hope.)
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Post by archer on May 4, 2023 19:32:44 GMT
I ran across this article today from Zacks. The article is written as if it is easy, but the article also includes so much lingo that whoever is able to understand the terms probably already knows the info being presented. Zack presents options as a no lose strategy, but this 2nd article explains (again complete with unintelligible jargon), ways one could lose substantially. If Zack's presentation is correct, I'd be down for trying it, as long as he does it for me. I'm skeptical though because the option's ETFs are not consistently raking in the dough.
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